2011 (11) TMI 268 - HC - Income Tax

Status of Trust - individual or association of persons- Held That - while determining the total income of a trustee who is an individual, the individual trustee is entitled to deduction under Section 80L of the Act. - After the advent of Section 161(1A) of the Act, the issue has been settled by this Court in Commissioner of Income Tax v. Manoranjitham Thanga Maligai Trust, (2002 -TMI - 12013 - MADRAS High Court), wherein the person referred to has been held to be the individual beneficiary and not association of persons Taxation of Income of Trust - In view of Commissioner of Income Tax v. T.A.V.Trust (2003 -TMI - 11514 - KERALA High Court), any income in respect of which a representative assessee is liable consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate.

Summary

Issues:
1. Whether the Tribunal was right in treating the assessee as an individual and not as an association of persons?
2. Whether the Tribunal was right in holding that the income of the trust has to be aggregated and the maximum marginal rate has to be applied on the income attributable to each beneficiary?

Analysis:
1. The Tribunal's order in the case under Section 80L of the Income Tax Act, 1961, emphasized that deductions are admissible for cases involving discretionary trusts with ascertained beneficiaries. The Tribunal concurred with the Commissioner of Income Tax (Appeals) that the net income of each beneficiary should be aggregated and subjected to the maximum marginal rate. This approach aligns with the provisions of the Act and relevant legal precedents.

2. The issue of the representative assessee under Section 160(1)(iv) of the Act was examined, clarifying the liability of the trustee appointed under a trust to receive income on behalf of beneficiaries. The introduction of Section 161(1A) from 1.4.1985 specified that tax is chargeable at the maximum marginal rate for income received by the representative assessee. Legal interpretations and precedents, such as Commissioner of Income Tax v. Venu Suresh Sanjay Trust and others, have established the entitlement of individual trustees to deductions under Section 80L.

3. The judgment in Commissioner of Income Tax v. Manoranjitham Thanga Maligai Trust confirmed that the assessment should be on the trustee, not solely on the beneficiary, as per the provisions of Section 161(1A). This aligns with the legal framework and ensures accurate assessment of income in trust scenarios. The Kerala High Court's decision in Commissioner of Income Tax v. T.A.V.Trust further supported individual assessment of profits and gains under a trust, emphasizing the applicability of the maximum marginal rate.

4. The precedents and legal interpretations consistently favored the assessee, emphasizing individual beneficiary assessment in representative scenarios. The Tribunal's thorough consideration of the issue, in line with legal provisions and judgments, led to the dismissal of the appeals. The judgment upheld the Tribunal's decision, concluding that no interference was warranted based on the established legal principles and precedents.